HEFFX Expect a New Wave of China Growth

HEFFX Expect a New Wave of China Growth

HEFFX Expect a New Wave of China Growth

In a note to traders today HEFFX has recommended investors revisit China, growth is expected to be strong, the idea Trump will hurt China trade is #fakenews. China is a Growth story.

China’s economy grew at an average annual rate of 10 percent from 1979 to 2010. With the country shifting from export-driven growth to an economy powered by domestic consumers, the growth has trended lower since 2010, and the Chinese government declared a “new normal.”

While slower growth is under way, U.S. investment bank Morgan Stanley said in a 118-page report that incomes are rising.

China’s per capita income is now 8,100 U.S. dollars, according to the World Bank. The report said the figure is expected to pass the 12,500-dollar mark needed to reach high income status by 2027 and break out of the middle income trap.

Higher incomes bring about higher consumption, the report noted, estimating China’s private consumer market will reach 9.6 trillion U.S. dollars by 2030 and account for 47 percent of GDP.

Accelerated consumer and industrial prices growth indicates nascent inflationary pressure on the Chinese economy, despite the good start to 2017.

The consumer price index (CPI) rose 2.5 percent year on year last month, fractionally above market expectations of 2.4 percent and the strongest in two and a half years. Meanwhile, industrial inflation expanded even faster, with the producer price index (PPI), which measures costs of goods at the factory gate, hitting an over-five-year high of 6.9 percent.

As China’s central bank has shifted to a prudent and neutral monetary policy, it will likely be more careful in balancing its multiple goals.

On the one hand, the People’s Bank of China (PBOC) is trying to contain leverage and reduce speculation in the financial market. On the other, it is trying to help stabilize growth in an economy that is in the midst of painful restructuring and expanding at its slowest pace in 26 years.

A string of economic indicators in January paint a rosy picture of the world’s second largest economy with steady growth and reform progressing, but keeping up the good work remains no easy task.

China’s economic performance in the first month of 2017 surprised the market in several ways, from expanding factory activity to recovering trade and rising corporate financing demand.

With Chinese policymakers having signaled they are focused more on preventing financial risks, confidence has grown that they can slow the pace of debt growth and create a more stable environment that allows companies to move toward high value-added economic activities.

Observers said China’s tepid performance in recent years reflects both cyclical dynamics and a decline in the economy’s overall growth potential. But the significance of each factor is to be determined.

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Shayne Heffernan Funds Manager at HEFFX holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.

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